Pundits ponder the virtues of MPF fee cutting
11 February 2014
Category: News, Asia, Global, Hong Kong
By Hui Ching-hoo
Industry experts have questioned the wisdom of Mandatory Provident Fund (MPF) providers’ fee-cutting strategies, noting that if the products themselves are not suitable for MPF members, then the initiatives being put in place may be futile.
These opinions were raised in response to Haitong International Investment Managers (Haitong), the offshoot of Haitong International Securities Group, announcing it was lowering its management fees for all constituent funds under the Haitong MPF Retirement Fund and waiving its investment management charges for these constituent funds between January 2014 and December 2016. The firm began doing so on December 9, 2013.
“Constituent funds” are defined in the explanatory memorandum as “a separate pool of assets of the retirement fund, which are invested and administrated separately from other assets of the retirement fund”. In particular, the constituents under the Haitong MPF Retirement Fund include the Haitong MPF Conservative Fund, Haitong Korea Fund, Haitong Asia Pacific (ex-Hong Kong) Fund, Haitong Hong Kong SAR Fund and Haitong Global Diversification Fund.
Ben Zhang, managing director of Haitong, said the initiatives were introduced in response to the Mandatory Provident Fund Authority’s (MPFA) call for fee reductions. He is confident that it will enhance the company’s competitiveness, and draw more employers’ and employees’ attention to MPF service providers of different scales in the market.
However, Francis Chung, chief executive officer of MPF Ratings Limited, tells Asia Asset Management that: “MPF Ratings’ consistent message to the market is that “value for money” is key to long-term wealth creation; so too is ensuring that MPF providers have the right funds in place for members.”
He adds: “Lowering fees may lead to lower service standards. Moreover, without the right strategic products available to members, what one does is effectively incentivise members to make poorer investment decisions. MPF Ratings considers the overall product design of products in the context of fees. If the product suite does not appropriately serve long-term wealth creation, lowering fees will not serve in the long term best interest of members.”
Elsewhere, Gadbury Group’s February 2014 edition of MPF Matters states that the MPFA and MPF providers should pursue the idea of having low-fee products rather that getting fees down across the board: “We consider that the most effective and pragmatic approach is to introduce a “core fund” as a default fund in each scheme to facilitate those scheme members, who do not have time nor expertise in fund selection, to choose MPF funds which align with the objective for retirement protection”, says the report